Levy v. North American Co. for Life and Health Ins.

• Decision Date: 09 November 1978
• Docket Number: No. 45201,45201
• Citation: 586 P.2d 845,90 Wn.2d 846
• Parties: Eldridge P. LEVY, Appellant, v. NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE, Respondent, Cross Appellant.
• Court: Washington Supreme Court

Page 846

90 Wn.2d 846

586 P.2d 845

Eldridge P. LEVY, Appellant, v. NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE Respondent, Cross Appellant.

No. 45201.

Supreme Court of Washington, En Banc.

Nov. 9, 1978.

Schroeter, Goldmark & Bender, Paul W. Whelan, James D. Hailey, Seattle, for appellant.

Williams, Lanza, Kastern & Gibbs, Don T. Mohlman, Seattle, for respondent-cross appellant.

HICKS, Justice.

Eldridge Levy sued the North American Company for Life and Health Insurance to recover under a disability insurance contract. He sought both the disability payments provided by the policy and damages arising from North American's wrongful refusal to pay such benefits. Levy appeals from an order dismissing the claim for damages. North American cross-appeals from: (1) the court's refusal to direct a verdict in its favor on the issue of policy liability; (2) an order denying its motion for judgment notwithstanding the verdict of the jury or, alternatively, for a new trial; and (3) the allowance of expert witness fees as costs against North American. We reverse on the appeal and affirm on the cross appeal.

Levy is a 55-year-old man who was formerly employed by the City of Seattle as a window washer. During the 10 years he worked for the city, his only medical problem was a bronchial condition of disputed description and etiology. Levy characterizes the condition as "periodic colds", while North American terms it a "long-standing history of lung disease." Trial testimony revealed that Levy had visited several doctors for treatment of this condition and that he had used an atomizer which dispensed a prescription medicine. He had not missed any days of work because of his "colds", however, and had the atomizer refilled only 11 times during the 7 years preceding trial. Though some doctors characterized Levy's disorder as "asthma", a chronic condition, there was testimony that he suffered only from "asthmatic bronchitis", an acute problem that may occur once or a few times in a person's life, but is not related to chronic asthma.

In 1974, Levy attended a sales meeting at which he was convinced to purchase a disability insurance policy from North American. The application form, which included several questions regarding the applicant's medical history, was filled out by North American's agent. Even before the agent could read the application questions to him, Levy advised her that he had a history of colds and needed an atomizer to clear his bronchial tubes. He did not inform her that he had been under the care of doctors or that the atomizer dispensed prescription medicine.

Based on Levy's statements to her, the agent presumed he suffered only from common colds and did not pursue the matter further. At trial, she testified that had she known Levy had been under the care of doctors, she would have asked more specific questions. The agent also stated, however, she had "no interest whatsoever in the atomizer", and she would not have recorded the fact Levy visited a doctor to get a prescription refilled.

After Levy's disclosure, the agent read to him the three health questions which appeared on the application form. In each instance he gave the response which suggested his health was good. A policy was issued to Levy in April 1974.

In June 1974, Levy was pinned beneath a desk which he and other workers were moving and sustained arterial blockage in his leg. He was hospitalized in October, had several surgeries, and is now permanently disabled. He notified North American of his injury in December 1974, and made claim for benefits under the disability policy. In January 1975, after receiving a copy of Levy's medical history, North American rescinded the policy claiming that he had failed to disclose his bronchial condition. At trial, there was testimony that had the ailment been disclosed, North American either would have issued a policy which excluded coverage of this particular condition I. e., the "asthma", or would not have insured Levy at all.

In November 1976, Levy brought this action for benefits under the terms of the insurance contract and for consequential, compensatory and punitive damages. The latter claim was premised on Levy's contention that the rescission of the policy constituted a breach of an implied covenant of good faith.

On the first day of trial, the court granted North American's motion to dismiss the claim for consequential, compensatory and punitive damages on the ground that a claim had not been stated. At the close of trial, the court directed a verdict for Levy on all elements of his cause of action on the insurance contract, except the question of whether he had made a misstatement on the application. That question, submitted to the jury on a special verdict form, was answered in the negative.

During the course of the proceedings, North American moved for dismissal, directed verdict, judgment n.o.v. and a new trial. All of those motions were denied. The court also denied North American's motion to strike expert witness fees from Levy's cost bill. The fees had been allowed as a sanction pursuant to CR 37(c) because the experts were called to prove a matter which North American had refused to admit under CR 36. Judgment was entered in March 1977.

Levy appealed, challenging the dismissal of his claim for damages, and North American cross-appealed from the denial of its motions. Thereafter Levy moved to transfer the case from the Court of Appeals to this court. The transfer was effected under RAP 4.3.

As to the dismissal of his claim, Levy argues that he is entitled to recover damages arising from North American's actions on either of two theories. The first is a contract theory under which he contends that he may recover consequential damages foreseeably resulting from North American's breach of an implied covenant of good faith. The second is based in tort and allegedly supports a claim for damages proximately caused by North American's bad faith breach of contract.

We hold that Levy's complaint states a cause of action under the Consumer Protection Act, RCW 19.86. Salois v. Mutual of Omaha Ins. Co., 90 Wash.2d 355, 581 P.2d 1349 (1978). Since that determination disposes of Levy's appeal, we do not discuss the tort and contract theories he alleges.

In Salois, we held that wrongful refusal to pay a claim breached an insurance company's duty to deal in good faith (RCW 48.01.030) and, consequently, was a per se violation of RCW 19.86.020. That provision declares that unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful. The remedy for violation of RCW 19.86.020 is found in RCW 19.86.090, and includes actual damages, attorney's fees and specified punitive damages.

Here, Levy alleges that North American acted in bad faith by rescinding the policy without reasonable justification. Since that wrongful rescission, if established, would entitle Levy to relief under RCW 19.86.020 and RCW 19.86.090, we hold that his claim should not have been dismissed. See Brown v. MacPherson's, Inc., 86 Wash.2d 293, 545 P.2d 13 (1975).

We recognize that Levy did not argue the application of this theory at trial. We also note, however, that the decision in Salois, which essentially created a new rule by clarifying or partially modifying earlier cases, was not rendered until after arguments on Levy's appeal were heard in this court. Moreover, while Levy did not specifically argue that RCW 19.86.020 was violated, his contention that North American breached an implied covenant of good faith reflects the essence of such a violation. See Salois v. Mutual of Omaha Ins. Co., supra, 90 Wash.2d at 359, 581 P.2d 1349. Since a new rule was adopted after the trial in Levy's case, and since his claim is essentially the same as one under that rule, we are satisfied that he is entitled to its application in this instance. See Memel v. Reimer, 85 Wash.2d 685, 538 P.2d 517 (1975).

On North American's cross appeal, its primary contention is that the trial court should have held the insurance company was not liable under the policy because Levy made a misstatement on his application. RCW 48.18.090 denies the right of an insurer to void a policy on the basis of misrepresentation unless the applicant made a false statement which either (1) was made with intent to deceive, or (2) materially affected the acceptance of the risk or the hazard assumed by the insurer. On Levy's claim on the policy, the trial court submitted the relevant questions under RCW 48.18.090 to the jury on a special verdict form with instructions that the issues of materiality and intent need not be considered unless the jury found that a false statement was made. North American asserts that the judge should have directed a verdict in its favor on the misstatement question, or should have entered judgment notwithstanding the verdict.

The tests for directing a verdict and for overturning a jury verdict once rendered are essentially the same. Both motions admit the truth of the nonmoving party's evidence and all reasonable inferences drawn therefrom. Rasor v. Retail Credit Co., 87 Wash.2d 516, 554 P.2d 1041 (1976). The trial court has no discretion and may grant the motion only where there is no competent evidence nor reasonable inference which would sustain a jury verdict in favor of the nonmoving party. If there is any justifiable evidence upon which reasonable minds might reach...